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Systems Engineering Laboratories (SEL) sells an issue of $300 million face value of subordinated debentures with a coupon rate of 9.375% (assume coupons are paid annually). Each bond in the issue has a face value of $1,000 and matures in 15 years. The bonds were originally sold at par. The 15-year risk free interest rate is 4.5%. The expected market risk premium (remember, this is rm-rf), is 7%.
Suppose the market believes that, if SEL were to default, the subordinated debenture holders would receive a recovery rate of 40%. Suppose also, in each year of the bond’s life, if the bond is still alive, that there is a 5% probability of default. Calculate the expected rate of return on SEL subordinated debenture bond.
A financial institution is permitted to use leverage up to a maximum debt to equity ratio of 20. Currently the bank finances its $ 100 of assets with $10 of equity. In the 10-K filed by Bear Stearns and Company for the fiscal year ending November 30,..
An individual is subject to federal MTR of 31% and a state MTR of 9%. He also pays a 7.65% FICA tax rate on labor earnings. He itemizes deductions, and deducts his state income taxes when calculating federal income taxes. Suppose the individual earns..
Amy signed a promissory note payable to Rose for $100. Assume that the promissory note meets all of the requirements for negotiability.
Choose one of the methods for calculating a firm’s cost of capital and provide a detailed explanation of how a firm would use this to calculate their cost of debt? How would a firm’s tax rate impact your chosen cost of capital?
what is Fletcher's expected stock price 5 years from now?
Quasik Corporation would like to use a currency option to speculate on the value of the Canadian dollar in 90 days. Quasik believes the value of the Canadian dollar in 90 days will be $.70. Currently, a 90-day call option with an exercise price of $...
what does the market believe will be the stock price at the end of 3 years?
You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th month, you will have $13,200 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earni..
Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier's stock.
The Majestic Blind Company sells its only product for $35 per unit with a variable cost per unit of $21. The firm’s break even point in terms of units.
Default Risk Premium A company's 5-year bonds are yielding 9.85% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 2.95%, and the maturity risk prem..
If a court awards a liability judgment of $100,000 against Donna, how much, if any, will each insurer pay?
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